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Tuesday, 11 September 1984
Page: 1001


Mr BRUMBY(5.05) —In supporting the Income Tax (Individuals) Bill 1984 and cognate Bills, I intend to address some of the rather loose claims made by the Deputy Leader of the Opposition (Mr Howard) in relation to income tax. First , I will give a little of the background to the Budget and the income tax Bills before us which form part of that. When the Hawke Government was elected 18 months ago, we promised to improve the Australian economy. Not only has our Government kept that promise but also have we succeeded so well that our economic growth is seen, by world standards, as a remarkable achievement.

Over 1983-84, our economy grew by an extraordinary 10 per cent in real terms. In June this year, it was predicted that, over the next 18 months, Australia would have the strongest economic growth of any Western country. Some 258,000 new jobs have been created. As a consequence, our unemployment rate has fallen from more than 10 per cent to its present level of 9.3 per cent. Also, inflation is at its lowest level for 12 years; it is now running at 3.9 per cent. We should compare that with the whopping 11.5 per cent inflation rate under the previous Government.

Clearly our record is not one of empty promises; it is one of promises kept. The net effect of that healthier and stronger economy is that our Government has been able to produce a Budget that is good for all Australians. It is a Budget that encourages consumer confidence and spending as a result of tax cuts in the Bills before the House. Yet it does not forget people on fixed incomes. It is a Budget that gives incentives to business to help promote employment and general economic recovery. It is a Budget which encourages a further downward trend in inflation, at the same time significantly decreasing the size of the deficit.

As I have said, that healthier economy has allowed us to produce a Budget that is good for all Australians. Part of that is the significant tax cuts in the Bills at present before the House. As I have said, the major Bills give effect to these Budget tax measures. At a cost of some $2.1 billion over a full year, all taxpayers will receive a reduction in income tax, with the biggest percentage going to lower income earners. The Bills also introduce a new five- step tax scale which replaces the old three-step scale in order to make the system much more progressive and much fairer.

At the lower end of the tax scale, the tax on incomes between the threshold and $12,500 a year will be reduced from 30c in the dollar to 25c in the dollar. That will mean that taxpayers earning less than $240 a week will enjoy a tax reduction of a very significant 17 per cent. I add that all taxpayers earning between $240 a week and $538 a week will have a tax cut of almost $8 a week. As the majority of Australian employees earn between those two amounts, it can be said that the large majority of taxpayers will receive a $7.60 a week tax cut. In general terms, the tax will assist in the quest for continuing income restraint. It will underpin what has already been the very successful prices and incomes accord. But the cuts will also boost family incomes. They will improve living standards and help stimulate consumer spending. Of course, the tax cuts take effect from 1 November.

At this stage, I think it is appropriate to make a few further pertinent comments in relation to these tax cuts. Over the past weeks, the Opposition-the totally discredited Opposition-has been running what can be described only as spurious advertisements claiming that the Budget tax cuts are not real tax cuts. That claim certainly astounds me because, in every sense, the tax cuts are real. They are very visible and they will be effective. The cost of the tax cuts in a full year will be a sizable $2.1 billion. Full tax indexation, which is the course so frequently advocated by the Opposition, would cost only $1.2 billion in a full year. So it is clear that these cuts are real and substantial. In fact , they are almost twice the level of cuts that would be available under a system of full tax indexation.

Not only will the vast majority of taxpayers receive a tax reduction of $7.60 but also will they be substantially better off than they would have been under full tax indexation. By way of example, I will take someone on an income of $13, 000 per annum. Under the Budget tax cuts, that income earner will receive an annual reduction in income tax of $395.25. Had the Government proceeded with full indexation, the course so frequently advocated by the Opposition, that same taxpayer on $13,000 per annum would have received a tax cut of only $96.60 over the full year. The net effect of course-the benefit of our Budget tax rates over indexation-is almost $300 per annum. A similar situation applies to someone on $ 19,000 per annum. The Budget tax cuts are worth $395.25 per annum. However, had we introduced full tax indexation such an income earner would have received $96. 60 in tax cuts. Again, the benefit to that taxpayer as a result of our Budget tax cuts amounts to almost $300 per annum.

Another claim which is made by the Opposition suggests that our Budget tax cuts have slugged pensioner recipients. That claim astounds me. In a Press release dated 9 September 1984 the Opposition spokesman on social security, Senator Messner, claimed:

The worsening tax situation of pensioners has been caused by the failure of the Government to adjust the tax threshold to take account of inflation. This has resulted in more of a pensioner's income becoming taxable.

To claim that more of a pensioner's income will become taxable because of our changes is simply totally false. Under the existing taxation arrangements the effective tax threshold for a single social security pensioner is $5,428 per annum. Under the full year effect of the proposed Budget tax changes the effective tax free threshold for that same single pensioner will be $5,595. That is clearly an increase. It is clearly false for members of the Opposition to claim that more of a pensioner's income will become taxable. I should add that, in addition to the tax cuts which I have described, all social security beneficiaries have benefited significantly, as I am sure all honourable members are aware, under the policies of our Government. Let us look briefly at some of the facts of the matter as opposed to the untruths which are peddled by the Opposition. If we look at the standard rate of pension and benefit we see that since March 1983 we have increased that by 19 per cent. If we look at the rate for a mother's or guardian's allowance we see that we have increased that by a massive 66.7 per cent in just 18 months. If we look at supplementary rental assistance we see that we have increased that by 50 per cent in just 18 months. If we look at the family income supplement we see that we have increased that by 40 per cent in just 18 months. I hope that puts to rest the myth that the Opposition peddled that this Government has been harsh on pensioners or social security recipients.

One of the very pleasing aspects of the Government's tax cuts policy is that an additional 85,000 needy Australians will now be fully relieved from paying any tax liability at all. This aspect of our tax changes, which involves the combined effect of the various rebates and the lower marginal tax rate of 25 per cent, has received little publicity. It should receive more publicity because it is freeing 85,000 needy taxpayers from paying any tax at all. Again, by way of example, let us look at the situation of a single taxpayer with a dependent child. The effective tax free threshold at the moment for that taxpayer is $7, 195. As a result of our Budget changes to tax rates the full year effect will mean that that single taxpayer with a dependent child can now earn $7,715 before starting to pay tax. For a married social security beneficiary with a dependent spouse the effective tax free threshold at the moment is $7,361. After the full year effect of our Budget tax cuts is taken into account that threshold will increase substantially, in fact by almost $1,000 over the full year, to $8,215. As I have said, that will free 85,000 needy Australians from paying any tax at all.

Briefly, in conclusion, I want to make some points about the policy of the Opposition in relation to these tax cuts. I have already mentioned the Opposition's favourite policy of tax indexation. It is a policy which would result in a tax cut, over a full year, of $96.60 for someone on an income of $15 ,000 per annum as against the Government's tax cut of $395.25. Our Budget, our tax cuts, will make that taxpayer better off by $300 per annum. I leave it to the Australian taxpayer and to the Australian community to make their own judgment on that issue. Perhaps in saying that and in saying that the Opposition supports tax indexation I am being a little generous and a little kind. It was only back in March, when the Deputy Leader of the Opposition, the honourable member for Bennelong (Mr Howard), was asked for his view on the tax cuts, that he stated:

I think if a government is faced with a choice between giving a tax cut of, say , $1 billion and having a deficit that is $1 billion lower than it otherwise might be I think it should choose the latter.

So the Deputy Leader of the Opposition would not be giving any tax cuts at all. But perhaps for an even fairer representation of Opposition policy on tax cuts we should look at what the Opposition actually did when in government. The former Government was the greatest phoney of all time. I am sure we all remember 1977 when the Opposition went into that election promising everyone a fistful of tax cuts. It was only just after the 1977 election when the Government introduced a tax surcharge. In effect it said: 'Thank you, voters, for your support before the last election. We have given you the tax cuts for the election. Now we are taking them away. We are grabbing the money back. Goodbye electorate'. That is what the former Government did.

Finally, let us look at the 1982-83 election income tax cuts that the last Fraser Government brought down. There is no doubt that those income tax cuts were substantial-$2.35 billion over a full year. But where did the money come from to finance those tax cuts? Certainly pay as you earn income tax was cut, but at what cost? As I have just said, the cost of the income tax cuts was $2.4 billion. Let us see how the Australian taxpayer paid to make it up. There was an increase in existing sales tax rates by 2.5 per cent with a revenue cost of $ 500m. Taxation at 7.5 per cent was put on certain goods previously exempt, with a revenue effect of $150m. The Fraser Government removed the excise exemption on off-road distillate at a revenue gain of $304m. The former Government increased excise on motor spirit and distillate-$214m. It put more on tobacco-$125m-and more on beer-$135m. When we add up all those sales tax increases we see that they come to $1.6 billion. That was some tax cut. We got $2.4 billion on the one hand and, on the other hand, the Fraser Government, the now discredited Liberal Opposition, took $1.6 back in indirect taxes.

The final point I wish to make very briefly relates to the claim made by the Deputy Leader of the Opposition that this Government is a high taxing Government . I challenge any member of the Opposition to dispute the claim that, in 1981-82 , under the Liberal Government, pay as you earn income tax earners contributed 11.7 per cent of gross domestic product. In 1982-83, again under the Liberal Government, they contributed 11.5 per cent of GDP in personal income tax. That was under the Liberals. Under the Hawke Labor Government's measures in the two years 1983 and 1984, personal income tax was 10.6 per cent of GDP and for this year it is estimated at 10.9 per cent. It is a total, fictitious myth to claim that this Government is a high taxing Government. The simple fact is that Australian pay as you earn taxpayers paid considerably more tax under the last two Budgets of the Fraser Government than they do now. I challenge any member of the Opposition to dispute that fact. Members of the Opposition ought, if they cannot dispute that fact, to stop peddling the lie that this Government is a high taxing Government.